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What's Next for Twitter (TWTR) Stock After Q4 Monthly User Decline?

Shares of Twitter TWTR plummeted over 10% Thursday morning despite posting stronger-than-anticipated Q4 earnings and revenue results. Investors and Wall Street instead seemed worried about the social media company’s declining user base as it tries to clean up its platform amid the “fake news” and misinformation concerns it has faced alongside Facebook FB.

Q4 Overview

Twitter’s Q4 revenues jumped 24% from the year-ago period to reach $909 million, which crushed our $871.59 million Zacks Consensus Estimate. At the bottom end of the income statement, TWTR’s adjusted quarterly earnings soared over 63% to reach $0.31 a share and blow away our $0.25 estimate.

Twitter posted its first full year of profitability in 2018 and record quarterly revenues. This helped show that its efforts to remove fake accounts and promote a so-called healthier discourse has paid off, or at least not taken away from its appeal to advertisers.

Clearly, there didn’t seem too much to be disappointed about in terms of Twitter’s core top and bottom-line metrics, which could mean investors are worried about Twitter’s user growth.

Twitter’s daily active user numbers, which it officially reported for the first time in Q4, popped 1.6% to 126 million. For quick perspective, Facebook boats 1.52 billion DAUs and Snap Inc.’s SNAP Snapchat posted 186 million. But Twitter said that it reports its figures differently than its fellow social media firms because it only counts users who can view ads.

Meanwhile, Twitter’s monthly active user figure, which it has reported for years, fell 1.5% sequentially to 321 million. The company saw its MAU’s fall by 9 million from the year-ago period. Twitter’s MAUs have fallen for three quarters in a row. In a sign that Twitter expects this trend to continue, the company said it plans to stop disclosing monthly users after the current quarter.

Despite the user decline, total ad engagements surged 33% as cost per engagement dipped 7%. Both of these are positive signs and suggest that Twitter’s user decline includes fake, spam-style accounts. “We enter this year confident that we will continue to deliver strong performance by focusing on making Twitter a healthier and more conversational service,” CEO Jack Dorsey, who also runs Square SQ, said in prepared remarks.

Outlook

Twitter has been a hard stock to own since it went public in the fall of 2013. Shares of Twitter fell over 10% through morning trading Thursday to sink as low as $30.31 a share on more than double its normal daily trading volume. This marked a roughly 37% downturn from its 52-week high of $47.79 per share.

Looking ahead, Twitter provided Q1 2019 revenue guidance between $715 million and $775 million, which would mark a sequential decline. The low point and the mid-point also represent a worrisome sign as it falls below our current $762.46 million estimate.

Going forward, Twitter is likely to remain attractive to advertisers because it is an invaluable platform for millions of people to consume information, from breaking news to entrainment. On top of that, Twitter is likely to benefit simply due to the rise of non-ad supported platforms like Amazon Prime AMZN, Netflix NFLX and soon enough Apple AAPL, AT&T T and others. Twitter has also actively expanded its own live streaming video offerings through deals with dozens of media outlets such as ESPN DIS.

Bottom Line

Twitter executives noted that the company is set to face higher expenses in 2019 as it furthers its fight against abuse on its platform, along with increased spending on new features, and a growing employee headcount. Therefore, Twitter could remain hard to gauge, but TWTR stock certainly has plenty of room to run this year. And the company’s pitch to users and marketers is simple.

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